This article is part of the Economics Week series in which we explore flaws in and alternatives to our current economic system.
Now more than ever we are facing a choice. We can either continue to operate within a system that keeps exploiting human and natural resources, thus inevitably leading to social upheaval and environmental extinction. Or we can make a change.
Our economies are the roots of our wealth and simultaneously our ticket to doomsday: developed countries live in excessive affluence, yet simultaneously have some of the biggest CO2 emissions per capita. In order to save the planet, we need to switch our priorities: we are not existing to keep the economy running, but the economy is supposed to suit our human needs! At some point powerful stakeholders began to tell us the opposite and we have started to believe it. It is due time to wake up from that illusion. We need to prioritize the lives of the generations to come over short-sighted money making.
From the 19th to the 20th century Europe has mostly transitioned from a laissez-faire system to a social market economy. Now it is societies’ task to further transition into a sustainable economy. The biggest problem: The achievements of worker`s rights, for instance, have taken decades. We only have a couple of years left to make the changes that are needed to avert climate catastrophe.
Our governments have not hesitated a moment at spending billions on aid for European industries during the Corona pandemic. Of course, it is important to save our economy from total collapse, but where is that enthusiastic generosity when dealing with climate crisis and the necessary economic restructuring? Sadly the earth does not have a strong lobby and big companies seldom start changing from their own incentive.
So where do we begin? What is our starting point?
From my point of view the biggest weakness of mainstream economic theory is the growth dogma: the belief that a country`s GDP (gross domestic product) needs to rise each year in order not to face an economic crisis. Even mainstream economists have to admit the current growth system is flawed: profits are currently being calculated incorrectly since they do not cover the hidden costs (negative externalities) of our economic structures: among others, costs for our health system (think of lung issues due to bad air quality) and environmental expenses (take wildfires or floods for example). Done properly, profit calculations would look entirely different, namely far worse. The economy must take into account their long-term negative impacts. At the moment a GDP rise will not reforest the tropics – rather the opposite.
Optimists, maybe just being ignorant, tell us we can simply detach growth from environmental exploitation (among them high-ranking Greens too). If only it were that easy. The growth dogma prevents such a development. Let us assume, all clothes are produced eco- and socially friendly. The prices per article would probably even decrease, because of mass production. However, the companies still need to make more revenue every year, thus continuously having to increase their sale. By means of strategic marketing we are wooed to buy evermore clothes, thereby increasing our carbon footprint no matter the quality of the products.
Infinite growth on a finite planet is not possible – let us finally adjust our goals accordingly. Post-growth puts a focus on qualitative development instead of increasing the amount of capital. Progressive economists agree that measuring a country`s wealth by its GDP is outdated. Hence, the first step towards a better economy is to measure success by other indicators than monetary surplus. Take, for example, education and mental health to judge a society`s development. We will never cope with environmental and social issues if we do not prioritise other values instead. Enough monetary resources must become a means to an end, not a goal for itself. The big task then is to figure out measures that will lead to stability and prosperity without the constraint to continuously create monetary profits. So what exactly could those measures be?
First, we need a more comprehensive Green New Deal. The EU legislation is a good start, but it is certainly not enough. In order to create the foundation of a sustainable economy we will have to decarbonize and transform our entire infrastructure, namely transport and energy, much faster than the EU is currently planning. Apart from all the jobs thus created, we can foster our service sector as there are almost no limits to the amount of people working in education, health, leisure and culture. Those jobs pose almost no environmental harm and, what`s more, will be the very last to be eradicated by automatization. As a result, it may even happen that the GDP will rise as a side effect – post-growth does not exclude that development.
Our most effective tool in this struggle is taxation. There are countless ideas progressive economists like Tim Jackson or Thomas Picketty propose to make a change – let us turn taxes upside down! Already there is a broad consensus to introduce working(!) environmental taxes on CO2, pollution, biodiversity etc… that is self-explanatory. Simultaneously, we reform wealth and income taxes to tackle inequality e.g. by introducing financial transaction taxes. As soon as we are not able to promise everyone continuously growing incomes, we must talk about redistribution as climate and social justice go hand in hand. Furthermore, we could even go as far as shifting the tax burden from labour to natural resource use. The smartphone manufacturer could be made to pay far more than the physician or hairdresser. This would automatically boost circular economy – economic logic would shift to using as little material resources as possible. Or we could start taxing common good – the better impact on society and environment a company has, the fewer taxes it must pay (I imagine Coca-Cola crying out loud). By means of tax restrictions we are only going to boost entrepreneurial creativity. Think about it: we only get truly innovative when put before a challenge. Not having to play by any rules makes humans lazy. I would call it a natural scientific axiom of idleness. “Why do I need to develop electric vehicles, if the government still subsidizes my fossil fuellers?” – German car industry. Needless to say, it were ideal if all those changes were to be introduced on a global scale. However, the feasibility of worldwide measures is an entirely different debate. We are here for the utopias.
We cannot know exactly how the future economy is going to look like. We only know that it cannot continue the way it works now. Many people are intimidated by how rapidly the world is changing, but often politics neglect these insecurities by not being able to come up with long-term narratives for the future. What we need now are new visions, new values, new goals and, as a consequence, we will find ourselves on the right path instantaneously.
I am aware that I write from a central-European perspective. Maybe we can only talk about economy in such a way because our material wealth has exceeded rational boundaries. And still, perhaps our perspective could help economically developing countries too. They may learn from our mistakes and take the right direction far earlier than we did. So, let us finish with a pathetically encouraging quote by Albert Einstein: “Learn from yesterday, live for today, hope for tomorrow. The important thing is not to stop questioning.”
Katja is a current member of the Ecosprinter Editorial Board. Her main occupation is studying psychology in the German city of Lüneburg. She is passionate about European, economic and social policies.